Obama mustn’t underestimate Modi

East Asia Forum - 13 hours 56 min ago

Author: Harshita Kohli, RSIS

US Secretary of State John Kerry’s recent visit to India for the India–US Strategic Dialogue, in which he described India as an ‘indispensable partner for the 21st century’, is a clear effort by the American government to jumpstart the flagging bilateral partnership.

During his stay in India, Kerry met with senior politicians and leading Indian businessmen. US Secretary of Defence Chuck Hagel also visited New Delhi last week to further the US–India defence partnership. The increase in senior-level interactions between officials from both countries is designed to set the stage for the bilateral summit to be held between Prime Minister Narendra Modi and President Barack Obama in Washington in late September 2014.

Since his election, Modi has been vocal in expressing the view that China, Japan and Russia are important partners for India and consequently has sought to deepen bilateral relations with them. With Modi already having met Xi Jinping and Vladimir Putin, it was imperative for the US to engage Modi too. The Obama administration, which was keen for Kerry to meet the new Indian leader, asked for the scheduled venue of the Indo–US Strategic Dialogue to be moved from Washington DC to New Delhi. Speaking to the media during his trip, Kerry even addressed the controversial visa ban on Modi by describing it as a decision taken by the previous government and not by the Obama administration.

Kerry’s visit to India, however, was more than just about increased diplomatic engagement between the world’s most populous democracies. The Indo–US partnership faces significant hurdles. Modi’s focus on reviving the Indian economy is a powerful impetus for the two countries to improve ties. The Obama administration hoped that Kerry’s visit would address issues relating to India’s protectionist economic policies that have made it difficult for US companies to invest more widely in India. During his trip, Kerry said the US wished to see trade with India expand to US$500 billion a year.

There is great potential, but there are also considerable obstacles. Increasing investment in infrastructure, growing the manufacturing industry, modernising the military and attracting more foreign investment will not only help Modi revive the Indian economy but will also offer lucrative opportunities for American businesses. New Delhi’s decision to raise the limit on foreign direct investment to 49 per cent in the insurance sector, and to open up the defence sector to foreign investment, has been welcomed by American investors. On the other hand, liability laws relating to nuclear trade and the bilateral investment treaty are obstacles that must be resolved for the Obama–Modi summit in September to offer any significant results.

Further complicating matters, India recently torpedoed the WTO’s Trade Facilitation Agreement. An accession protocol for the agreement, which had been agreed upon by world leaders including by India’s former government, had to be ratified by all signatories by 31 July. But New Delhi vetoed the trade deal claiming that the WTO failed to provide India with a suitable alternative to India’s policy of offering food subsidies and maintaining large stocks of food. India’s U-turn on the agreement cast a shadow over Kerry’s visit and led the US to remark that India’s decision sent a ‘confusing signal’.

The Obama administration is also looking for more robust Indian participation in the Asian security structure vis-à-vis China. This may prove to be difficult as Modi is looking to chart his own partnership with Beijing based on a thriving economic partnership and is unlikely to take an overtly anti-China stance. In his former role as chief minister for Gujarat, Modi achieved a significant level of Chinese investment in his state.

The road ahead could be rocky, but Kerry’s decision to come to New Delhi was a signal to India that improving ties continues to remain a priority for President Obama. India’s ability to withstand international pressure at the WTO coupled with its clear displeasure over the National Security Agency spying revelations should be taken by the US as a signal that the Modi government will not necessarily maintain the strategic stance of the previous UPA government. The Obama administration should take India’s decision at the WTO as an indication of Modi’s style of leadership. Unlike his predecessor, Manmohan Singh, the US must realise that Narendra Modi is an independent thinker who is not afraid to go against the general consensus of his party.

Before leaving for India, Kerry aptly described the Strategic Dialogue as a ‘potentially transformative moment’ in India–US relations. Both countries must recognise the strategic and economic opportunities they represent for each other. For India, it is beneficial to develop stronger strategic ties with the US as it will leave New Delhi better equipped to deal with the repercussions of the growing Pakistan–China partnership or failure by India and China to resolve their border disputes. Improved economic ties with the US will also help Modi revive the Indian economy and thereby maintain domestic popular support.

Having recognised the pivotal role New Delhi can play in Washington’s rebalancing strategy, it is imperative that President Obama offer certain strategic and economic concessions to India. These could include pushing for a permanent seat for India in the Security Council, abandoning potential reforms in his immigration bill that would significantly reduce the number of work permits issued to Indians, and adopting stronger measures to control terrorist activity in Afghanistan after the US withdrawal. These measures could help bring the momentum back into the India–US partnership.

Harshita Kohli is an Associate Research Fellow with the US Studies Programme at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University.

Categories: Forum

Collective self-defence: What Japan’s new defence policy means for international cooperation on cyber security

East Asia Forum - Wed, 08/20/2014 - 17:00

Author: Mihoko Matsubara, Pacific Forum CSIS

In July 2014, the Shinzo Abe cabinet took an epoch-making decision to change its interpretation of the Japanese constitution to recognise the right to collective self-defence. The Japanese government’s traditional interpretation of the constitution prohibited Japan from exercising the right to help the US, or Japan’s defence partners, in the case of an armed attack, even though Article 51 of the Charter of the United Nations authorises this.

The cabinet decision carries symbolic importance for Japan’s alliance with the US and defence partnerships with other countries, including Australia and the UK, as it signals Japan’s strong will to be a more proactive partner.

But the practical implications of the reinterpretation remain unclear, especially in cyber security cooperation. There are two reasons for this.

First, there is no internationally agreed upon definition of ‘armed attack’ in cyberspace to base the right to collective self-defence on. The North Atlantic Treaty Organization (NATO) agreed to extend Article 5 (on collective self-defence) of its Washington Treaty to include cyberspace. But NATO members have not reached an agreement on how the article should be applied.

This arises from the complicated nature of cyber-attacks. While some types of cyber-attacks such as distributed denial of service attacks and website defacements are hard not to notice, for others it is difficult to detect and identify the culprit in a timely manner due to their stealthy and borderless nature. It is challenging to provide an overarching, clear threshold of the duration, intensity and scope in which cyber-attacks would fully or partially constitute ‘armed attack’ to enable countries to respond under international law. An official, clear-cut definition to the public could prompt adversaries to launch cyber-attacks under the threshold and could hamper allies from responding collectively and swiftly when a new type of cyber-attack appears. It is also difficult to choose an appropriate counteroffensive measure — whether cyber, non-cyber or a combination of both — in the case of a stealthy attack when the government cannot necessarily identify the true cause quickly.

Second, although the July 2014 cabinet decision acknowledges increasing risks which prevent countries from ensuring free access to cyberspace, it does not specifically cover cyber security cooperation. The 15 scenarios where the right to collective self-defence can be exercised that were provided by the Japanese government do not include any cyber components.

The cabinet decision reflects a report submitted by an advisory panel to Prime Minister Abe in mid-May 2014, which recommended that the interpretation of the Japanese constitution allow Japan’s Self-Defense Forces to execute the right of collective self-defence when necessary. The advisory panel discussed whether collective self-defence could be applied to cyberspace in 2013, but the 2014 report avoided making any conclusions.

The report only observes that so far cyber-attacks have not been categorised as constituting an ‘armed attack’ but some cyber-attacks do satisfy the three necessary conditions for Japan to use force in its self-defence. These conditions are, first, that there is an imminent and illegitimate act of aggression against Japan; second, that there is no appropriate means to repel this incursion other than the use of force in self-defence; and third, that the use of force is confined to the minimum level needed to repel the attack. Following the cabinet decision in July 2014, the Japanese government redefined the first condition to cover not only Japan but also in some cases its ally and defence partners.

But these constraints do not mean that the reinterpretation of the Japanese constitution prohibits Japan from contributing to other countries’ cyber defences. Collective self-defence would require allies or defence partners to conduct more joint exercises to enhance their crisis communications and interoperability. Since military operations and critical infrastructure such as energy supplies, finance and medical services are increasingly reliant on computers and the internet, any alliance or defence partnership needs to consider cyber security to make their ties resilient. Accordingly, it is crucial to include cyber components in joint exercises to make them realistic.

Joint exercises are key to making joint operations seamless and increasing the capability of cyber defences. The Japanese and US governments have committed themselves to revise the US–Japan Defense Cooperation Guidelines by the end of this year and to include bilateral cooperation on cyber security in the revision. Holistic joint exercises and relevant information-sharing could make up an important part of the revision.

As military operations depend on the reliable operation of critical infrastructure, joint exercises should not be limited to military personnel. The involvement of industry is indispensable. When Abe met with UK Prime Minister David Cameron in London in May 2014, the two leaders signed the UK–Japan Sports Host to Host Agreement to share lessons learned from the London Olympic Games for the upcoming Tokyo Olympic Games in 2020. Since the Olympics demands multilayered public–private partnerships to ensure safety and security, this will prompt Japan and the UK to launch bilateral public–private partnerships for cyber security. Such cooperation may help to create a template for effective cyber security collective self-defence in the future.

Mihoko Matsubara is a senior cyber security analyst and adjunct fellow at the Pacific Forum CSIS. Views expressed here are her own.

Categories: Forum

Increase in coal tax will scale up Indian renewables

East Asia Forum - Wed, 08/20/2014 - 05:00

Author: Pallav Purohit, IIASA

India needs economic growth for sustainable development, which in turn requires access to clean, convenient and reliable energy. An estimated 400 million people still lack access to electricity, and blackouts are still common across the country. A combination of rapidly increasing energy demand and fuel imports plus growing concern about economic and environmental consequences is generating growing calls for innovative policies and mechanisms to promote increased use of abundant, sustainable, renewable resources.

The Indian government initiated a renewable energy program to diversify national energy sources about three decades ago. The government aimed to add 455 GW of renewable capacity by 2050. Currently, renewable sources contribute about 13 per cent (32 GW) to India’s 249 GW installed capacity base.

The National Action Plan for Climate Change (NAPCC) sets a target for the share of renewables-based power generation from the current 4 per cent to 15 per cent by 2020. As a result, renewable projects currently benefit from several policy initiatives: accelerated depreciation benefits, feed-in tariffs, a ten-year tax holiday and generation-based incentives. As part of the NAPCC, the government launched the Jawaharlal Nehru National Solar Mission (JNNSM) in 2010 which aims to add 20 GW of grid-connected solar capacity by 2022, along with other solar targets for off-grid space.

The government plans to launch a similar program for wind. The National Wind Energy Mission, announced in January, will aim for 100 GW of wind power by 2022, a third of India‘s estimated wind energy potential. While the government has taken certain measures for the promotion of renewables, these need to be scaled up and expedited. The development of the sector suffers from a number of constraints, overlaps and gaps in the current policy and regulatory environment.

The government’s ambitious goals for solar energy, coupled with the country’s rapid progress in developing wind energy, raise many questions regarding the sources and costs of the investment that will be needed to install and operate this infrastructure. Stressing the need for India to start addressing its emissions, a government report released at the end of May 2014 put the costs of investing in low carbon energy systems at US$834 billion up to 2030.

The National Clean Energy Fund (NCEF), announced by the Indian government in its Union Budget 2010-11, is seen as a major step in India’s quest for energy security and reducing the carbon intensity of energy. The objectives of the NCEF are to fund research and innovative projects in clean energy technologies and to harness renewable sources to reduce dependence on fossil fuels.

The former UPA government had decided to levy a tax of $US0.84 per tonne on both domestically produced and imported coal to build up the NCEF, and fund research and innovative projects in clean energy technology. However, the NCEF has been widely criticised for inconsistencies between the stated objectives, operational guidelines and final approval of the projects. The government had collected over US$6.5 billion through the tax. But it has allocated just over 1 per cent of this amount to the Ministry of New and Renewable Energy (MNRE), out of which just US$267,000 has been spent so far on renewable energy projects in the past three years. There was a high degree of policy and regulatory uncertainty for investment in the renewables sector.

The newly elected Modi government announced a suite of initiatives for solar energy across the country and promised a ‘saffron revolution’ that will include ambitious targets for small, large and off-grid solar and a switch away from an assumed reliance on coal as the country seeks to deliver on its momentous task of bringing electricity to the entire country. The new government increased the coal tax to US$1.67 per tonne in July 2014. While this proposal was welcomed by renewable energy experts, there is uncertainty over what the additional revenue will be spent on, based on past experience.

The scope of expenditure from this fund has also been widened to include environmental projects and research and development projects in the clean energy and environment sectors. The new government will fund its ambitious Ganga rejuvenation plan with the tax on coal. It is also planning to spend as much as US$167 million on projects earmarked for this financial year and has earmarked US$84 million for the initial implementation work for four ultra-mega solar power projects each with a capacity between 2 GW and 4 GW — the energy situation could change rapidly.

Another US$67 million would be provided for installation of 100,000 solar-powered irrigation sets and water-pumping stations. Moreover, the canal-top solar power plant will receive US$17 million this year. The new government also plans for a 5 GW solar power project in the Ladakh region. This further emphasises the scale of India’s renewable ambitions. The recently-announced Wind Energy Mission has also pinned its hopes on the NCEF for potential funding.

The increase in the clean energy tax can be still considered an innovative attempt by the Modi government to acquire additional resources to support its environmental plans. It can be seen as a step towards helping India meets its voluntary target to reduce the amount of carbon dioxide released per unit of gross domestic product by 25 per cent from 2005 levels by 2020. The NCEF must be used to provide much-needed impetus for the development of emerging renewable and clean energy technologies, and the financial capital to early-stage and high-potential projects. It is important that the government provides easier access to finance through NCEF for the renewables sector.

Pallav Purohit is Research Scholar at the International Institute for Applied Systems Analysis (IIASA).

Categories: Forum

Thailand’s interim constitution: paving the way for a return to authoritarianism?

East Asia Forum - Tue, 08/19/2014 - 17:00

Author: Sarah Bishop, ANU

Thailand, for the 19th time in 82 years, has a new written constitution. The King promulgated the Constitution of the Kingdom of Thailand (Interim) B.E 2557 (2014) on 22 July 2014, finally bringing an end to the nation’s fourth longest period since 1932 without a written constitution. However, although there are some small gains, there are very few positive signs for democracy or rule of law.

On the positive side, the interim constitution provides for the formation of several new governing bodies including a cabinet, national legislative assembly, national reform council and constitutional drafting committee. While the junta exercises considerable control over membership of these bodies, and appointments so far have largely been of military personnel, the creation of these bodies should at least result in greater power sharing and transparency than existed during the period prior to promulgation of the interim constitution when the junta was ruling by executive decree alone. The interim constitution also leaves the composition of the judiciary untouched and gives some recognition to basic principles of human rights.

However, little effort is made to make the new bodies appear democratic or representative. There is no procedure for members of any of the bodies to be selected through popular processes, and persons who have held a position in a political party in the past three years are excluded from being members of all except for the national reform council. There are also many other grounds on which persons are excluded from being members of the bodies, most of which focus on past misconduct or removal from political office. In practice these criteria most strongly affect past members of the Pheu Thai party and its predecessors. Also noteworthy is the exclusion from the cabinet and constitutional drafting committee of judges, a group who have often assumed a prominent role in governance in post-coup periods.

Similarly, in contrast to the 2006 interim constitution, which emphasised public involvement in the creation of a new constitution, the 2014 interim constitution makes no provision for public consultation on, or approval by referendum of, a new permanent constitution. Also, criteria expressly set for the content of the new permanent constitution by the interim constitution focus mostly on the need to establish even more effective mechanisms for preventing corruption and populism and, of democracy, say only that the model established must be ‘appropriate to the conditions of Thai society’. Given the extent to which anti-corruption mechanisms under the 2007 constitution denied due process and impacted governance, whether even stricter measures can or should be adopted is highly questionable.

Also, although new bodies are created, the junta retains significant powers. Most worrying of these is a non-reviewable power to ‘make any order, or suspend or take any action’ which the head of the junta considers necessary for a very broad range of permissible reasons including ‘for the benefit of any aspect of the reform process’. Similar powers conferred under past constitutions have been used to order executions, detain opponents, curtail freedom of speech and target past rulers. Inclusion of this power therefore gives rise to concern that the formal recognition of rights will be meaningless. Assurances given by drafters that the power is no broader than powers possessed by the junta prior to promulgation of the interim constitution do little to allay this concern. The junta is also given more discrete powers to ask the cabinet to act and to suggest that the new draft constitution be amended.

Further, the junta is afforded an amnesty for actions taken in seizing and consolidating power, and, all orders issued by the junta both prior to and after adoption of the interim constitution but before appointment of a cabinet are rendered legal and constitutional. Although past constitutions have included similar provisions, the conferring of legality on junta orders not yet issued without any stipulation of processes to be followed or permissible grounds is unique.

Also, for the first time in Thai history the interim constitution itself includes an amendment procedure, giving rise to apprehension regarding how ‘interim’ it is.

Overall, there is little in the interim constitution that is surprising. Like interim constitutions that have preceded it, the 2014 interim constitution is intended to legitimise the coup that led to its drafting and to protect and empower the coup-makers. It is not intended to provide legal protections or establish democratic rule.

What is surprising, however, is the particularly blatant manner in which it rejects democratic process and confers powers and immunities on the junta, and the sheer prevalence of anti-corruption rhetoric which has often been used to justify authoritarian rule and which in current political circumstances is far from neutral.

Signs from the interim constitution seem to be that Thailand may be headed for yet another period of extended authoritarian and arbitrary rule.

Hopefully, this is not the case.

Sarah Bishop is a PhD candidate in Thai Law at the ANU College of Law, The Australian National University.

Categories: Forum

Back to the drawing board on US–India relations?

East Asia Forum - Tue, 08/19/2014 - 06:02

Author: Sourabh Gupta, Samuels International

The US–India strategic partnership is either the most underperforming bilateral relationship in the world or its most overrated. As a new chapter in this relationship is opened with the formation of a new centre-right government in New Delhi and the back-to-back visits by John Kerry and Chuck Hagel in late July and early August, it is imperative that the path that is charted ahead is informed by the lessons of the past decade and a half.

It was assumed that with the passing of the bipolar international order and India’s own shift towards market economics, the traditional commonality of democratic values, complemented by an increasingly robust set of inter-societal ties, would accentuate a dramatic convergence of national interests between the two countries.

In the Indo-Pacific region, Washington and New Delhi (and the other major maritime democracies) would be bound by a common interest in countervailing Chinese power, curbing nuclear proliferation, participating in non-traditional security missions and post-conflict reconstruction efforts, and securing the global commons, especially the sea lines of communication. A generous civil nuclear deal was bestowed on New Delhi to consummate this blossoming relationship. Down the line, it was hoped that India might even provide ‘over-the-horizon’ rotational facilities for US forces to manage contingencies that might arise in West and East Asia.

Little of this bold agenda has come to pass.

Far from growing into its designated role as America’s deputy sheriff in the Indian Ocean region (and perhaps someday thereafter as a co-partner across the Indo-Pacific region), New Delhi has doubled down on its autonomist leanings. It has resisted participating in major multi-service combined exercises that prepare for high-end operational missions; stayed away from stationing personnel at US combatant command headquarters; turned down a series of foundational pacts that would have enhanced logistics and battle-group networking; opted for Russian rather than US high-precision, military-grade navigation signals; opted to strip out tactical interoperability aids (high-end electronics and avionics suites) after purchasing US-origin platforms (P8I and C-130J aircraft); and even allegedly passed up the opportunity to get a to-be-decommissioned supercarrier — the USS Kitty Hawk — for free!

Defence ties with Japan and Australia too have been limited to the odd naval exercise from time to time, with little scope for logistics sharing or information exchange envisaged. The only tangible achievement, despite vigorous efforts, has been US$15 billion of American defence hardware sales.

The disappointments do not appear to have tempered the belief of the faithful. Undaunted, they argue that with the departure of the previous government and its long-serving, proto-socialist defence minister, US and India defence ties stand poised to once again break out of the policy stagnation of the past few years. According to this school of thought, Washington should reauthorise and update their 2005 Defense Framework agreement to enable collaboration in multinational operations of common interest. Washington should prioritise military intelligence exchanges and formalise institutional links so as to share classified information on the region. It is also thought that Washington must deepen service-to-service engagements and incorporate service chiefs and regional commanders within institutionalised policy mechanisms. Washington should use the recent Defense Trade and Technology Initiative to take the defence sales relationship beyond the buyer-seller model to one of co-development and co-production.

Each of these agreements and activities is worthy in its own right; equally, on each of them except co-production, the Indian defence-military establishment has shrunk from participating jointly with the US during the past decade or has let the arrangement lapse — despite possessing the legal flexibility to cooperate.

In important respects, the same questions that went unanswered 15 years ago remain applicable today: what is the template by which one operationalises a defence partnership with a critically important country that will never be a treaty ally (and is the primary antagonist of a ‘non-NATO ally’, Pakistan), yet is more than just a friendly, non-hostile state?

Can enhanced defence cooperation and technology handouts infuse a strategic congruence or must the causality run the other way? If technology sharing boosts India’s autonomous defence capability, then does it not detract from the purpose of deepening the partnership? If New Delhi of its own accord bears a larger share of the region’s security burden, what is its imperative to also simultaneously increase cooperation with US forces in the region?

The civil nuclear deal and the mainstreaming of New Delhi within the international dual-use technology-sharing regime at a moment of US primacy did not furnish the desired answer to these questions. In the more constrained age ahead, it is not clear why New Delhi’s strategic calculation will change any more favourably. Although China’s rise and behaviour could supply such a rationale, Beijing is a key pivot in India’s multi-aligned foreign policy strategy and successive governments in New Delhi have seen greater wisdom in operating in the slipstream of Beijing’s meteoric rise than by aligning against it. That most observers continue to implicitly — and smugly — base the ‘natural’ convergence of US and Indian interest in Asia on the belief that China and India are irrevocably locked in strategic competition may, to the contrary, provide a hint as to why Washington’s relationship with New Delhi has serially fallen short of expectations in the first place.

The future of US–India strategic ties in Asia and the world in the 21st century is too important to be constructed solely or even primarily through a China-management lens. The defence cooperation elements within this relationship — joint exercises, intelligence exchange, arms deals, technology-sharing, weapons co-development and co-production, and so on — should be constructed on a pragmatic, interest-based foundation that is geared to nudging the Indo-Pacific region’s multilateral security relations towards a more consociational model of international relations where power is shared and balanced within.

Embracing this balance between autonomy and alignment in the US–India strategic partnership will also lock the two countries in a strategic embrace that will favour a stable geo-political equilibrium in the Indo-Pacific region.

Sourabh Gupta is a Senior Research Associate at Samuels International Associates, Inc. An expanded version of this post, originally appearing in the Pacific Forum CSIS PacNet newsletter, can be found here.

Categories: Forum

Abe finding it hard to get his way on defence

East Asia Forum - Mon, 08/18/2014 - 17:02

Author: Yoshisuke Iinuma, Oriental Economist Report

On 1 July, Japan’s Prime Minister Shinzo Abe announced a decision to broaden the interpretation of the Japanese Constitution to enable Japan to exercise its right to collective self-defence. But to what extent will the Japan Self-Defense Forces (SDF) actually be able to expand their range of collective action?

Legally speaking, the Cabinet decision has no teeth on its own. The decision will only have an impact if it is implemented via subsequent revisions to the law by the Diet. Politically speaking, the situation is only going to become more difficult for Abe. The ruling Liberal Democratic Party’s (LDP) coalition partner New Komeito supported collective self-defence on the condition that the language included some restraints. But a schism is already developing between the Abe administration and New Komeito over their interpretation of the Cabinet decision.

Also, the Japan Restoration Party (JRP), who originally supported collective self-defence, is now backpedalling because their members have parted from former JRP co-leader Shintaro Ishihara and assorted right-wing groups. The party is to merge with the Unity Party led by Kenji Eda, who claims collective self-defence is unnecessary.

Neither is the upcoming schedule kind to Abe. Gubernatorial elections for Fukushima and Okinawa prefectures will be held in October and November. Voters in Fukushima, still hurting from the collapse of their local community, will create major resistance to the Abe administration.

Voters in Okinawa are against the construction of a replacement facility for the US Marine Corps Air Station in Futenma and are extremely sensitive to matters of war and peace. The debate over collective self-defence will inevitably have a major effect on upcoming elections, just as it did in the gubernatorial election in Shiga prefecture where the LDP-supported candidate lost in an upset.

Abe was  forced to postpone the presentation of a bill relating to collective self-defence until next year, due to both resistance in the Diet and the plunge in poll ratings that followed the Cabinet’s collective self-defence decision. The Abe administration’s approval rating is trending downward, and all the recent polls are showing that it is less than 50 per cent. In a 19-20 July poll by the Sankei Shimbun, 35.3 per cent agreed with the move to reinterpret the Constitution while 56.0 per cent disagreed with it. A 25–27 July poll by Nikkei produced 36 per cent in favour and 48 per cent against the move to exercise collective self-defence.

But collective self-defence is hardly the only issue causing Abe trouble with the voters. Support for his economic policy is diminishing. Voters are divided on his overall foreign diplomacy and security policy. And, on issues like nuclear power, lowering the corporate tax and raising the consumption tax again, voters disapprove of his actions by large margins. That reduces the political capital he can spend on collective self-defence.

Why is there so little support for collective self-defence?

First, many Japanese people have a naïve outlook on security. Despite China’s rise as a military power and North Korea’s belligerent attitude, the roots of a pacifist mentality extend deep into the social psychology of post-World War II Japan.

Second, the nuclear disaster in Fukushima lifted the curtain on the malfeasance and lack of accountability of Japanese politicians and bureaucrats. Behind every dissenting voice is a general perception that the strict restraints against collective self-defence should not be loosened under such a system.

Third, the public is bewildered that the relatively alien concept of collective self-defence has been so suddenly thrust at them and has already become the subject of a Cabinet decision.

Fourth, opponents are sceptical about the ability of Japanese politicians and bureaucrats to manage ties with Japan’s allies, especially when interests diverge. Those against collective self-defence can use actual examples of Japan succumbing to the political and administrative whims of the US to make their counterarguments. For example, in the 2003 Iraq War Japan, unlike France and Germany, sent the SDF to Iraq. The opposition holds that the SDF provided only humanitarian support because of the restrictions against collective self-defence, but they wonder what would have happened if the restrictions had been lifted.

Some researchers believe the American stance (or lack thereof) on the Senkaku/Diaoyu islands dispute between Japan and China is proof that the US does what is convenient for the US. The current American position is that while the US–Japan Security Treaty applies to the defence of the Senkaku/Diaoyu islands because they are under the administrative control of Japan, the US does not concern itself with territorial sovereignty. This is an example of  American political convenience. Before 1971, when  Nixon  visited  China, the US maintainedthat Japan had sovereignty over the area.  The more people realise these facts, the more they doubt Japan’s capacity to manage its allies, and the stronger the backlash becomes against collective self-defence.

Finally, the fact that Abe is behind collective self-defence is keeping it from being accepted. Japan would most likely exercise the right to collective self-defence in response to a crisis on the Korean Peninsula. Under such a scenario, the SDF could provide supplies, intercept suspicious vessels in surrounding ocean waters and provide other assistance, but the need for SDF vessels to enter South Korean territory to rescue Japanese people may arise.

Unfortunately, given the turbulent relationship that Tokyo currently has with Seoul, which has been exacerbated by actions such as Abe’s visits to the Yasukuni Shrine and denials regarding ‘comfort women’ during World War II, neither side can consider entering the territory of the other. This problematic relationship also precludes discussions that the US wants to have about trilateral security among the US, Japan and South Korea.

Given these difficulties, it is highly likely that in the end Japan’s exercise of collective self-defence will be severely limited.

Yoshisuke Iinuma is Contributing Editor for The Oriental Economist Report.

A version of this article first appeared in the August 2014 edition of the Oriental Economist Report.

Categories: Forum

Moving Modi beyond Gujarat

East Asia Forum - Mon, 08/18/2014 - 05:00

Author: Rajiv Kumar, CPR

With the Modi government less than 3 months old, it is surely too early to make any assessments. But high expectations and his track record have generated an impatience for results even among Modi’s supporters. News trickles out mentioning an indefatigable prime minister driving from the front, changing the tenor and temper of the entire bureaucracy.

This apparently unprecedented behind-the-scenes activity was reflected in Modi’s maiden Independence Day address on 15 August. Being beholden to symbolism, he used the address to lay out his government’s development blueprint and invite people’s participation from the ramparts of the Red Fort, the ancient imperial seat of the Mughal emperors.

Those who observed Modi during his tenure as Chief Minister of Gujarat point to his stellar record in project implementation and in raising efficiency levels across government departments. His model involved intensive analytical work with a highly trusted team, along with other senior bureaucrats, and then a focus on delivering on the targets agreed. Planning took place during three-day brainstorming camps, or chintan shivirs, which culminated in clearly defined annual targets along with a plan of action.

Apparently this is being replicated in Delhi, with senior bureaucrats making detailed initial presentations, followed by iterations that reflect feedback from Modi himself, and then finalising modalities for project execution. This is top-notch project management. But will it suffice to achieve the rapid, sustained and inclusive growth needed to fulfil rising aspirations? Will it shield India’s new middle class from the double whammy of high inflation and growing unemployment?

The Indian economy, unlike Gujarat, is not merely a vast project site. The Modi model pioneered in Gujarat, which saw the chief minister as a super-efficient CEO, can no doubt produce higher growth rates by improving project implementation and raising the efficiency of public services delivery. These are India’s weak spots and Modi is right to rectify them. This also plays to his strength.

However, unlike in the states, the central government has the principal responsibility of putting together an overall, multidimensional and coherent policy framework. Policy formulation has to precede project design or its implementation.

Consider the many thorny policy dilemmas facing Modi. Is inflation in India a purely monetary phenomenon to be tackled by fiscal and monetary contraction or does it require focused management of supply side issues? Can India afford to run higher fiscal deficits if this results in improved productivity? Can agriculture be modernised without a robust land market? Are flexible labour policies a necessary condition for promoting manufacturing? Should India maintain a relatively weak currency for promoting exports?

There are myriads of other areas demanding attention, including food security, climate change, FDI restrictions in defence, and the balance between closer ties with Japan and a diplomatic strategy that aims to leverage China’s vast financial reserves for infrastructure investments in India.

In tackling these problems, the central government must establish a coherent and rational policy framework that will better serve strategic national interest. And an undue emphasis on policy continuity would severely constrain innovative policy choices and rule out breakthroughs.

Making the right policy choices in an increasingly complex and globally integrated economy requires technical inputs and expertise. Fortunately, such expertise is available. Modi needs to tap into this pool of knowledge, including successful expats, as well as employing new technology to source ideas and make the right policy choices.

It would be efficient to locate expertise either within or in close proximity to the government. This will create positive synergies between experts and civil servants. In India, bureaucrats spend most of their time putting out fires and implementing projects. It is not allowed to develop expertise and its global exposure is sporadic. An exclusive reliance on career bureaucrats and diplomats and the resultant bureaucratic capture of policymaking can have seriously negative outcomes.

India’s current isolation in the WTO following its rejection of the Trade Facilitation Agreement is an example of where expert advice could have made a difference. Outside expertise will also be needed to build upon the 31 July India–US dialogue in time for Modi’s trip to the US in late September. By effectively marshalling available expertise and creating necessary synergies with the bureaucracy, the prime minister will signal his preparedness to move beyond Gujarat.

Rajiv Kumar is a Senior Fellow at the Centre for Policy Research.

This article was originally published here, by the Times of India.


Categories: Forum

The promise of a Jokowi presidency in Indonesia

East Asia Forum - Sun, 08/17/2014 - 19:00

Author: Peter Drysdale, Editor, East Asia Forum

Most would concede that the contest that saw the election of Joko Widodo (Jokowi) as Indonesia’s next president was a tough test for democratic transition in Indonesia. The election campaign was certainly one with an edge to it — ‘one of the dirtiest election campaigns in Indonesian history’, as Marcus Mietzner has called it. There are still legal appeals to be heard, but the size of Jokowi’s victory and the very public evidence on the count, make anything but confirmation of the result a most unlikely outcome.

Jokowi’s opponent, the tough talking Prabowo Subianto, former son-in-law of ousted president Suharto, was advised by American consultants, previously mentors to Republican candidates on how to drown out opponents in smear campaigns. Prabowo’s electoral machine spread false rumours that Jokowi was a Singaporean Chinese and a Christian. Jokowi was pushed onto the defensive by the bite of these attacks among Indonesia’s devout Muslim community. But, though the contest tightened in the run to the wire, Jokowi emerged the clear winner.

What is clearer day by day is how remarkable a victory this was, not only for Jokowi but for Indonesian democracy and the entrenchment of its institutions.

It’s not just a question of the success of the process delivering the vote, as Thitinan Pongsudhirak has remarked. The efficiency with which an election of the scale of the Indonesian contest was run ought to be a matter of national pride and, in some respects, puts the conduct of elections in much older democracies to shame. The turnout was over 70 per cent and running the poll passed without significant incident.

It is also the way in with the contest has been managed and is being concluded, despite the heat in it, that distinguishes it as ‘pivotal to the fate of democracy and regionalism in Southeast Asia’, as Thitinan claims. ‘Indonesia has its fair share of scandals and intrigues, such as the conviction of the former head of the Constitutional Court, Akil Mochtar, for corruption’. But this election was free, fair and unmarred by violence. And, when it came to the end point, incumbent President Susilo Bambang Yudhoyono, the candidates and the other key stakeholders all acted to preserve the dignity and integrity of the democratic state.

But what Jokowi’s election to the presidency offers Indonesia, its people and the region above all is the promise that politics is not the preserve of the elite — those with established power and privilege — to hold and to handle as if by some self-appointed divine right. And that is a promise that is of truly historic significance.

Promises, of course, may end in tears. And there’s no doubt that whether Jokowi succeeds in delivering on the promise of his presidency will depend greatly on how he is able to manage Indonesia’s economy.

The Indonesian economy has been doing quite well over recent years, with an average growth in real terms somewhat above 6 per cent annually. But the growth rate has slipped below 6 per cent this year and the World Bank and the IMF both forecast that it’s unlikely to recapture its lustre next year. Jokowi has taken up the challenge, saying on 21 July that he aims to push the growth rate above 7 per cent, to a rate that would double Indonesia’s income over the coming decade.

In our lead essay this week, Shiro Armstrong argues that this is not only possible but necessary to create jobs for the tens of millions joining the workforce each year. He explains that the recent slow growth comes at the tail end of the resource boom, although the effect of end of the boom was not felt immediately because of the easy money in global capital markets from quantitative easing in the United States. To keep inflation under control and avoid a balance of payments crisis, the fiscal and monetary authorities have been engineering a slowdown and demand-side consolidation. ‘That a slowdown was necessary when growth is below 6 per cent in an economy at Indonesia’s level of development — and with its young and growing population — points to major structural problems in the economy’, says Armstrong.

Dealing with these structural problems and lifting growth to its true potential between 7 and 10 per cent is the big challenge for the Jokowi presidency.

In a series on the Indonesian economy this week, Stephen Howes and Robin Davies argue that success with the economy will require a tighter fiscal focus on productive government expenditures, instead of wasteful spending on a range of subsidies and supports and, in particular, the phased retreat from fuel subsidies that account for a whopping 25 per cent of government expenditures.

Armstrong argues that there will need to be a significant supply-side effort to lift productivity by restructuring the economy. Compared to its neighbours, he notes, Indonesia largely remains outside regional production networks. Participation in global supply chains allows countries to specialise more efficiently and realise their comparative advantages, generating employment and importing technology, capital and know-how.

To do that Jokowi will need to quell protectionist and nationalist as well as vested interest influence on policy and encourage the country to embrace openness to trade, investment, people and ideas. And that’s where the promise might become a tad more difficult to deliver.

Peter Drysdale is Editor of the East Asia Forum.

Categories: Forum

Can Jokowi transform Indonesia’s economy?

East Asia Forum - Sun, 08/17/2014 - 05:00

Author: Shiro Armstrong, ANU

Indonesia’s president-elect Joko Widodo (Jokowi), who takes up the position in October, has declared he aims to push the growth rate of the economy above 7 per cent a year. The growth rate has been running below 6 per cent a year, and the World Bank and IMF predict that it will continue at 5.6 per cent and 5.8 per cent, respectively, in 2015.

The recent slow growth comes at the tail end of the resource boom. The effect of the end of the boom was not felt immediately due to the easy money in global capital markets from quantitative easing (QE) in the United States. To keep inflation under control and avoid a balance of payments crisis, the fiscal and monetary authorities have been engineering a slowdown and demand-side consolidation.

That a slowdown was necessary when growth is below 6 per cent in an economy at Indonesia’s level of development — and with its young and growing population — points to major structural problems in the economy. Income per capita is US$3500 and the median age is around 28 years: a growth rate of below 6 per cent is too low to create jobs for the 2.3 million young people entering the workforce each year. Indonesia needs to cash in on this demographic dividend or else face the prospect of mediocre growth and stagnant incomes and remain stuck in neutral, in a middle income trap at the lower bound, for the foreseeable future. As Indonesia has the world’s fourth largest population, the potential implications go beyond a less prosperous Indonesia.

To avoid the new normal in Indonesian economic growth being below 6 per cent, there will need to be a significant supply-side effort to lift productivity by restructuring the economy.

Compared to its neighbours, Indonesia largely remains outside regional production networks and its manufacturing sector does not play a significant role in factory Asia. This is a weakness when faced with lower commodity prices globally and non-resource growth is critical.

Indonesia is attracting more foreign direct investment than ever and is climbing the global rankings as a preferred destination for investing but that is occurring with little improvements to the investment environment or competitiveness. For example, for the first time in the history of the Japan Bank of International Cooperation survey of Japanese firms, which started in 1989, Indonesia has been ranked as the most attractive destination for Japanese investment, overtaking China, which has consistently been the highest over recent decades. The main reason appears to be rising wage costs in China. But, to remain an attractive destination for foreign investment, much more will need to be done at home beyond relying on external factors.

Compared with its neighbours (Thailand, Malaysia, China, the Philippines, Vietnam and Singapore), Indonesia has by far the smallest share of manufacturing as a share of its GDP or of total exports. Indonesia is even more of an outlier when it comes to parts and components manufacturing as a share of GDP or exports. Indonesia is, of course, connected to the lowest-cost suppliers in the region, via multinationals that import from their supply chains to their plants in Indonesia, produce goods, and then sell to the domestic market. But what is absent is a role for Indonesia-based producers as major suppliers to those networks internationally.

Much fuller participation in global supply chains and lifting of the growth potential can be achieved through improving infrastructure, improving the investment environment and using regional initiatives strategically to make strong commitments that reinforce domestic reform priorities. Being part of production networks allows countries to specialise more and realise their comparative advantages, which is important in generating employment and importing technology, capital and know-how.

As a vibrant democracy, Indonesia has at times allowed protectionist and nationalist voices to dominate and make Indonesia appear inward-looking. Jokowi needs to turn that around and help the country embrace openness: openness to trade, investment, people and ideas. The countries around Indonesia which have succeeded in sustaining high growth have done so by integrating into the regional and global economy.

When hosting the 2013 APEC summit, Indonesia championed infrastructure investment. Structural reform and macroeconomic constraints are inhibiting needed infrastructure expansion in Indonesia and throughout the region. Infrastructure spending as a proportion of GDP has not returned to pre-Asian financial crisis levels in Indonesia and the infrastructure deficit has been a major bottleneck to growth.

Also in 2013 Indonesia helped deliver a breakthrough at the WTO Ministerial in Bali which builds momentum for regional and global cooperation. The challenge now will be for Indonesia to commit to, and show leadership in, the Regional Comprehensive Economic Partnership (RCEP) and the implementation of the ASEAN Economic Community (AEC), where there are new opportunities that strongly complement domestic reform priorities.

Many in Asia and beyond will be watching Jokowi as the success of the AEC and RCEP depends very much on Indonesia. Luckily for Jokowi, strong commitments to the AEC and RCEP are the easiest way to effect the structural change needed to transform Indonesia’s economy and lift it on to a higher growth trajectory.

Shiro Armstrong is Co-Director of the Australia-Japan Research Centre at the Crawford School of Public Policy, ANU and Editor of the East Asia Forum. This piece draws on the April edition of the Bulletin of Indonesian Economic Studies ‘Survey of Recent Developments’ written with Sjamsu Rahardja. 

Categories: Forum

Jokowi must make difficult choices to avoid a fiscal squeeze

East Asia Forum - Sat, 08/16/2014 - 05:00

Authors: Stephen Howes and Robin Davies, ANU

Indonesia is certainly not facing a fiscal emergency, especially given its low stock of government debt (about 25 per cent of GDP). But it nevertheless faces three serious fiscal problems.

First, its rising fiscal deficit (now close to the legislated cap of 3 per cent of GDP) is symptomatic of strong underlying upward pressure on expenditure not being matched by commensurate revenue growth. Expenditure is above, but revenue is below its long-term average. This poses a long-term threat to sustainability and a shorter-term risk to the macroeconomy, as it will put upward pressure on the current account deficit.

Second, the deficit cap, combined with the government’s inability to control energy subsidies, will crowd out more productive and equitable expenditures — as was seen in Indonesia’s revised 2014 budget, in which there were massive cuts to investment and maintenance to make room for fuel subsidies.

And third, the preference of the Indonesian legislature to set ambitious spending targets not only adds to the two concerns above but also increasingly limits spending flexibility.

Above all, a new approach is needed to get Indonesia’s enormous energy subsidies under control. Irregular, one-off increases have not worked. A multi-year plan for their elimination is required. The start of new Indonesian president Joko ‘Jokowi’ Widodo’s first term is the best and perhaps the only time for such a plan to be put in place. However, past experience suggests that reducing Indonesia’s energy subsidies is an extremely difficult task, with uncertain probability of success. A broader approach to addressing Indonesia’s fiscal problems is needed.

Let’s start with expenditure. The first problem is the growing prevalence of mandated expenditure. The constitution requires that 20 per cent of all expenditure be spent on education; a health law sets a similar, though lower, requirement for health. There is legislation governing how much the central government has to transfer to provinces and districts and now, with the new village law, to villages. Some of these requirements are expressed as a percentage of central government revenue, some as a percentage of expenditure. If the budget were balanced, about 45 per cent of central government revenue would be pre-committed or mandated by law.

To this, we can add interest and subsidy payments — another 35 per cent of revenue if the budget were balanced. These two items are very different in nature, but equally inflexible since they are both difficult to change in the short term.

So, if the budget were in balance, some 80 per cent of expenditure would be either mandated or inflexible. That would only leave 20 per cent of revenue for other needs. And that is nowhere near enough.

That’s of course why the budget isn’t in balance, hasn’t been for some time and won’t be for some time. But allowing the deficit to expand to the maximum allowed under legislation — 3 per cent of GDP — won’t be enough either.

To see this, assume that there is no tax reform, so that the ratio of revenue to GDP is unchanged in 2015 (at 15.8 per cent) and that the deficit is kept at 3 per cent of GDP.

Now consider the policy positions the incoming president will inherit. These include commitments to spend more, in some cases much more, on, among other things: infrastructure, social security, defence and public service salaries. We model the policy commitment to protect and expand these areas by assuming, conservatively, that they grow at the rate of nominal GDP. Other expenditures are allowed to be squeezed, growing only at the rate of inflation.

If we assume also that all legislative and constitutional commitments are met in full, and that there is no subsidy reform, then, under our simulation, total spending expands to 20.5 per cent of GDP, which is 1.7 per cent of GDP greater than the expenditure envelope, given the revenue (15.8 per cent of GDP) and deficit (3 per cent of GDP) assumptions.

What will the new government do? Some of the legislated spending requirements will be phased in more slowly, but there are other spending commitments that we haven’t taken account of because of a lack of data, such as the introduction of health and unemployment insurance.

Clearly, more revenue is needed, energy subsidies have to be cut and the deficit has to be run at or close to 3 per cent of GDP for some time. On top of all that, tough choices are needed among competing expenditure priorities. Defence and infrastructure might both be important, for example, but Jokowi’s administration will need to decide which is more so.

It will also be important that the new president and parliament desist from any further earmarking of expenditure. They might even consider unwinding some of the existing fiscal mandates, on the basis that the budget should be the instrument for weighing expenditure priorities, not laws considered and passed in isolation.

That might be wishful thinking, but change is needed. Indonesia has in recent years been on a spending spree. Fiscal reform will quickly emerge as an overriding, and not very pleasant, imperative for Indonesia’s new rulers.

Stephen Howes and Robin Davies are Director and Associate Director, respectively, at the Development Policy Centre, Crawford School of Public Policy, Australian National University. This is the last in a series of three posts on their “Survey of Recent Developments” appearing in the latest Bulletin of Indonesian Economic Studies. The first post can be found here. The second post can be found here.

A version of this article was first published here on New Mandela.

The Indonesia Update will be held at The Australian National University on 19–20 September. The theme is The Yudhoyono Years: an assessment.

Categories: Forum

Building Silk Roads for the 21st century

East Asia Forum - Fri, 08/15/2014 - 17:00

Author: Pradumna B. Rana, RSIS

China’s emergence as the ‘factory of the world’, based on its focus on exporting labour-intensive manufactures, is well-known. Less well-known is the role that infrastructure played in this strategy.

From 1992 to 2011 China spent 8.5 per cent of GDP on infrastructure, much more than the developing country average of 2–4 per cent, according to a 2013 McKinsey Global Institute report. And, from 1992 to 2007, China spent US$120 billion on building 35,000 kilometres of highways.

China’s push for infrastructure development within its borders picked up pace with its Western Development or ‘Go West’ policy, implemented in 2000. Under this policy, the government sought to address the growing economic disparity between the prosperous coastal region and the inner western region by building infrastructure towards the hinterland, and by attracting investments to the west.

Last year, China devised a ‘New Silk Roads’ policy to enhance connectivity with neighbouring countries. This policy has two components: a ‘Silk Road Economic Belt’ for land connectivity initially with Central Asia and a ‘21st century Maritime Silk Road’ to connect China with ASEAN and, ultimately, with the coastal cities of South Asia as well.

China’s actions have led to the revival of the Northern Silk Road. Cities in inner provinces such as Kunming, Chongqing, Chengdu, Xi’an and Xining have emerged as major metropolitan cities with urban infrastructure projects paralleling those in coastal areas. China has built an east–west railway line to connect far-flung cities like Urumqi and Kashgar to Xi’an and the coastal cities. This railway line has been extended to Moscow, using Central Asia as an economic corridor, and then on to Duisburg (in Germany) to become the China–Europe railway line. East–west pipelines such as the Kazakhstan–China and Central Asia–China pipelines have also been built.

In conjunction with India, which is actively implementing its ‘Look East’ policy, China is building the BCIM Economic Corridor to connect the Yunnan province of China with Myanmar, Bangladesh and India. This is an important segment of the less well-known Southern Silk Road.

In June this year, the Chinese Ambassador to New Delhi, Wei Wei, proposed the establishment of a ‘Trans-Himalaya Economic Growth Region (THEGR)’ to promote the interconnection and joint prosperity of China and India and neighbouring countries. As with many such proposals from China, details are not known as yet. Nonetheless, the proposal is welcome as it addresses an important missing link in connectivity in the region.

It is expected that establishing new economic corridors between India and China through Nepal would be one component of the recent Chinese proposal. Another would be establishing India–China connectivity through the Nathu La pass in Sikkim. Recently the Global Times said that the extension of the Beijing–Lhasa railway to Shigaste, a Chinese city close to the Nepal border, would open next month. It also mentioned that the railway line would be extended by 2020 to two separate points, one on the border of Nepal (Kerung) and the other on the border with India and Bhutan.

In a recent study prepared for the Asian Development Bank (ADB), a colleague and I have proposed four multimodal Trans-Himalayan Economic Corridors (THECs) beginning in New Delhi and Kolkota, passing through Kathmandu and Tibet, with two turning east to Southeast Asia and another two turning west to Pakistan, Afghanistan and Central Asia. We have also proposed that the BCIM project be expanded to cover all of the South Asia Sub-regional Economic Cooperation countries, including Nepal and Bhutan.

China’s THEGR proposal should focus on the four of these economic corridors. Complemented by the three economic corridors in the Greater Mekong Sub-region and the six in Central Asia, these THECs would lead to a seamless Asian economy extending all the way from Central Asia to South Asia and East Asia, lifting growth for all.

Distances between major Indian cities and the rapidly growing inner cities of China would be reduced by more than half if land routes via Nepal can be used instead of the traditional sea route via Hong Kong. While sea freight is the most cost effective way of moving goods for bulky items, other, less bulky items, such as parts and components in supply chain trade whose significance is growing rapidly, could be more cost effectively transported by road or air.

Just as it did in the Greater Mekong sub-region and in Central Asia, the Asian Development Bank should promote the idea of the four THECs as a facilitator, financier, honest broker and technical advisor. The THECs will have to be put together like pieces of a jigsaw puzzle. Possible new sources of financing include the newly-established BRICS bank and the soon-to-be-established Asian Infrastructure Investment Fund. Border trade and cooperation between neighbouring districts/provinces of India, Nepal and China should also be promoted since issues tend to be less tense at the sub-national level than at the country level.

Pradumna B Rana is Associate Professor at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore.

Categories: Forum

A green light for reproductive rights in the Philippines

East Asia Forum - Fri, 08/15/2014 - 05:00

Author: Lianne Urada, UCSD

For a long time, the Roman Catholic Church in the Philippines, and politicians who support the church’s oppositional stance towards reproductive health, thwarted the passage and implementation of the Responsible Parenthood and Reproductive Health Act of 2012. In a country where abortion is illegal, the Reproductive Health Act guarantees ‘universal access to medically safe, non-abortifacient, effective, legal, affordable and quality reproductive health care services, methods, supplies and devices’, including treatment for post-abortive complications and contraceptives ‘which do not prevent implantation of a fertilized ovum’. It also mandates raising public awareness on reproductive health especially among adolescents, including how to protect themselves against sexual abuse and violence.

After finally passing in 2012, the Reproductive Health Act stalled in the Supreme Court due to pleas to reverse it. But in April the Supreme Court dismissed these efforts. Now, for the first time, 9.1 million Filipinos will receive sex education in public schools, free contraceptives (for marginalised populations) and safe, post-abortive care.

Sex education in public schools has particularly spurred debate. The Roman Catholic Church in the Philippines argues that instead of having sex education in schools, the Philippines can more effectively reduce poverty by eliminating government corruption and creating jobs for all. Despite the church’s stance, 70 per cent of the Philippines’ population supported the Reproductive Health Act, despite 80 per cent of the population being Catholic.

Due to a lack of employment opportunities, Filipino workers have sought work abroad to support their families, often leaving their children behind in the Philippines. This dynamic has led to teen pregnancy and single parenthood for some youths. Teen pregnancies in the Philippines have more than doubled over the past 10 years, according to a recent study.

Currently, over 50 per cent of the Philippines population is under 18 years old. Poverty, and a lack of knowledge about how to reduce sexual risk and pregnancy, has made young women more vulnerable to sex trafficking and forced thousands to flock from rural areas to cities. Many have ended up in the sex trade (for example amongst the approximately 2000 female bar and spa workers in Quezon City, Metro Manila) as a way to support their families and children.

Equally alarming, HIV among youth increased ten-fold in the Philippines in 2013, compared to 2006. The HIV crisis is especially affecting young men and men who have sex with men. In 2012, the Philippines was one of only nine countries worldwide with a rise in HIV. Age-appropriate sex education, especially around tolerance, sexual risks and the correct use of condoms as well as other contraceptives, could make a dramatic difference in curbing HIV infections and population growth.

In a 2013 survey I undertook in Metro Manila of 100 males and females in the sex trade, only 20 per cent of male and 20 per cent of female street sex workers and 65 per cent of venue-based female bar or spa workers ever received a HIV test. Over half had children: 18 per cent had a child under 18 years and 22 per cent had three or more children. Sixteen per cent had used drugs in the previous three months and 59 per cent had experienced sexual or physical violence from clients. They underwent a brief HIV sexual risk reduction intervention that integrated reproductive rights training — a model that could be implemented in both the formal and informal educational sectors.

The Philippines must now decide on how to implement sex education not only in schools but also for out of school youth and high risk populations, such as those engaged in substance use and the sex trade. One thing is certain — the Reproductive Health Act has enormous potential to impact population growth and minimise sexual risk, but only if it is implemented. For this to happen, the country must first agree upon a sex education curriculum. Next, lawmakers and educational institutions at local government levels must back its implementation.

Dr. Lianne Urada is an Assistant Professor in the Division of Global Public Health, UC San Diego.

Categories: Forum

Why corporate behaviour is under scrutiny in Myanmar

East Asia Forum - Thu, 08/14/2014 - 17:00

Author: Trevor Wilson, ANU

Most observers agree that international business must play a large role in Myanmar’s economic transformation, but there is not yet a consensus on how this should occur. Should additional obligations be placed on international firms over and above compliance with any (voluntary) international codes of conduct under the United Nations or the OECD? How much corporate social responsibility should companies practice if and when they enter Myanmar? Are there effective ways of getting better business behaviour in a ‘regulation free zone’ like Myanmar, or will market-driven international companies inevitably be able exploit loopholes in Myanmar laws?

After 1990, a comprehensive international socio-economic disengagement from Myanmar occurred as OECD members imposed a variety of political and economic sanctions against the military regime when it did not allow a transfer of power after Myanmar’s 1990 elections. For at least 20 years, whether prohibited under the sanctions by OECD members, or whether effectively discouraged by official policies or simply by adverse market conditions, most members of the international business community had ceased conducting business with Myanmar. They effectively disengaged from Myanmar, closing down distribution and supply networks, ending commercial intelligence gathering, and ultimately dispensing with much in-house basic operational know-how about Myanmar. Meanwhile, Myanmar’s own broad regulatory framework to ensure proper governance in business and social arrangements largely lapsed.

The philosophy of corporate social responsibility (CSR) has always attracted a good deal of criticism, as being ‘mainly public relations’, or worse, as ‘corporate greenwashing’. Among the companies which remained in Myanmar after 1990, some had turned to CSR to counter criticisms of their working under a military regime and against the spirit of international sanctions. So CSR is not new in Myanmar. It was accepted after 1990 by the military regime, which allowed some foreign and domestic firms to conduct CSR-like activities, perhaps because Myanmar badly needed new foreign investment. The speed and unexpected nature of the initial political and economic reforms in Myanmar, combined with Myanmar obviously not being ready for international business, also generated a plethora of corporate social responsibility recommendations and proposals during 2011–12.

In the immediate aftermath of the start of Myanmar’s reforms in 2011, a rush of reports from global risk management companies warned about the risks associated with conducting business in Myanmar. In particular, the June 2013 McKinsey Global institute report, which was relatively positive about Myanmar’s economic prospects, warned soberly that ‘all the fundamentals — political and macroeconomic stability, the rule of law, enablers such as skills and infrastructure — must be in place’.

In a significant move, in response to the unusual Myanmar situation, the United Nations itself decided in 2012 to escalate its efforts to provide a safety net for business activities in Myanmar. UN Secretary-General Ban Ki Moon himself ‘launched’ the Global Compact in Myanmar on 1 May 2012, enlisting the participation of companies operating in Myanmar. UN-associated international financial institutions such as the World Bank and the Asian Development Bank were also notable for their strong endorsement of CSR in Myanmar at this time.

Since May 2013, US firms reopening business operations in or with Myanmar have been required to submit regular reports on their activities demonstrating their compliance with responsible business principles. The EU and the UK have also been pro-active in fostering ‘responsible business’ behaviour in Myanmar. At the moment, any UK or EU company seriously thinking of entering the Myanmar market is encouraged to consult the Office of Responsible Business, which was set up in the British Embassy in 2013.

The Myanmar government itself in 2012 announced its intention to sign onto the Extractive Industries Transparency Initiative, for which Australia has provided technical support. As leader of the opposition, Chair of the National League for Democracy Aung San Suu Kyi has explicitly advocated ethical business practices in her numerous meetings with business leaders during all her overseas visits since 2013. In addition, the OECD’s ‘Investment Policy Review of Myanmar’, released on 1 March 2014, gave prominence to the need for ‘responsible business’ principles to be observed by international firms operating in Myanmar. Domestic public support has also come from Myanmar’s non-government organisations, such as the peak Myanmar business organisation, the Union of Myanmar Federation of Chambers of Commerce and Industry and from international NGOs such as the International Bar Association and human rights monitoring groups.

Foreign firms setting up in Myanmar henceforth cannot afford to ignore such developments. It would be folly for companies to ignore CSR factors when doing business in Myanmar at this point in time. Their responsibility to do so under voluntary international codes should be sufficient guidance, given that one way or another all foreign corporate entities will be similarly constrained.

Trevor Wilson is a Visiting Fellow at the ANU College of Asia and the Pacific and a former Australian ambassador to Myanmar.

Categories: Forum

India is not the bad guy, but it can do better

East Asia Forum - Thu, 08/14/2014 - 05:00

Author: Rajiv Kumar, Senior Fellow, Centre for Policy Research

India’s recent veto of the WTO Trade Facilitation Agreement (TFA), agreed at the Bali Ministerial last year, raises several points that speak to its commitment to the multilateral system, the need for agricultural reform and India’s place in the world.

First, multilateral trade negotiations have always been and continue to be an inherent component of global realpolitik. Countries will always attempt to put pressure on others to achieve their objectives in every deal. India could not be seen to have succumbed to external pressure. Prime Minister Narendra Modi had to choose between two kinds of headlines: one which said that India stood in the way of a deal which might have boosted global output by US$1 trillion, or one that said that the Modi government had surrendered to external pressure and denied food security to one billion Indians.

Is it any wonder that Modi opted for the former?

In India as in other democracies, international negotiations are more about domestic politics than global welfare gains. Modi would have committed political suicide if he had accepted the TFA without being able to show that he had secured the interests of India’s farmers and safeguarded food security for its poor consumers. Even those of us who have strongly advocated for a robust multilateral trading system under the WTO aegis may be inclined to endorse the Indian government’s stand on this occasion.

With US Secretary of State John Kerry in Delhi at the time that the TFA was approaching its deadline of 31 July, it was clear that the US — while not exactly endorsing India’s stand — also recognised the domestic concerns facing Modi. Kerry and Penny Pritzker, the US Commerce Secretary, clearly did not want the TFA to cast a shadow over Modi’s impending visit to Washington in September. This augurs well for India–US bilateral relations because they can now be built on a clear understanding of each other’s national interests. That is always a preferable starting point, especially for a relationship that needs major effort on both sides.

The WTO’s loss of credibility in this latest development was self-inflicted. For some years now, first under Pascal Lamy and now Roberto Azevêdo, the WTO secretariat has been unable to grasp that the global negotiating configuration has changed and it cannot simply ignore the demands and concerns of emerging economies. If the director-general was able to submit a monthly timetable the day before the deadline, he could have done so six months earlier as well. One hopes that the WTO secretariat will get its act together and put the food security negotiations on an accelerated track.

Azevêdo should actively discourage any attempt to launch the TFA by a group of countries while excluding India. This is neither desirable nor feasible. India should work to prevent such an initiative. India should also learn the lesson that even its BRICS partners will abandon it in global forums if that suits their national interests.

With the US, EU and China more focused on supra-regional trade pacts, it will be up to countries like India to put in the extra effort required to save and resuscitate the WTO. The onus is on India to allocate the necessary expertise and resources for reinventing and reinforcing the multilateral trading system. This, of course, implies that India sees merit in strengthening the system. A clear enunciation of India’s policy stance on the multilateral system would help a great deal.

The Indian government, having asserted its sovereignty, would do well to now recognise that the interests of those below the poverty line and of marginal and small farmers are not best served by the current subsidy regime. The Food Security Bill, though it passed unanimously in the previous Lok Sabha, is not a wise or even a practical piece of policy legislation. If implemented in its current form, it has the potential to destroy the domestic food grain trade and also further ratchet up food prices.

Real food security for the poor will be ensured by raising agricultural yields and increasing output. This requires converting India’s backward agricultural system into a modern technology-driven sector. The sooner the government announces a clear policy framework for achieving a second green revolution, the better.

The government should expedite the implementation of the direct conditional cash transfer to the poor, which will allow them to buy food on the open market. To mitigate the fear of a possible misuse of these cash transfers, these could be done in the form of smart value storage cards that would be biometrically protected and only permit the purchase of food.

Direct conditional cash transfers could also be made to small and marginal farmers who would be able to purchase fertilisers or any other agricultural inputs from the open market. This will eliminate the cornering of the fertiliser subsidy by rich farmers. With these reforms, which would transform the Indian agriculture sector and eliminate leakages and distortions in poverty schemes, India would be far better equipped to play a more effective role in global trade governance.

Finally, one hopes that the government will come up with a far more effective communications strategy that will win it new friends and allies in global forums. In these days of variable strategic geometry and an absence of any set of permanent partners, more effective communication is required to yield the highest returns.

India should not aspire to isolation, but nor should it be made to appear as the villain when it is only pursuing its national interests.

Rajiv Kumar is a Senior Fellow at the Centre for Policy Research. He is the former Director of ICRIER and former Secretary General of FICCI.

This article was originally published here, by India Today.

Categories: Forum

Time for a new approach to Indonesia’s energy subsidies

East Asia Forum - Wed, 08/13/2014 - 17:00

Authors: Stephen Howes and Robin Davies, ANU

Indonesia’s new president, Joko Widodo (Jokowi), will face many challenges but none more pressing and immediate than dealing with Indonesia’s energy subsidies, which this year will constitute a quarter of total government spending. Everyone agrees that these subsidies are wasteful, but their persistence is striking. They were 20 per cent of expenditure when President Yudhoyono (SBY) came to power, and they will be almost 25 per cent when he leaves office later this year.

President Yudhoyono (SBY) authorised three large fuel price hikes over the course of his two terms, with compensation packages for each to help soften the blow. These were hailed worldwide as courageous and intelligent policy reforms. President Obama asked SBY to talk about them at the G20 in 2009 to inspire other countries to follow suit. But they haven’t worked. The increases have been too few and far between, and there have been price decreases as well.

The enemy of fuel subsidy containment has been not so much a rising international oil price, or even a depreciating rupiah, as simply inflation. After inflation, the subsidised or regulated petrol price is today 22 per cent lower than it was immediately after the large price hikes in 2005. The unsubsidised price is (or would be) 6 per cent lower, and the per-litre subsidy 43 per cent larger. Huge political capital has had to be consumed merely to make up for the erosion over time in the real value of the subsidised price.

How can Indonesia escape from its subsidy trap?

A more radical reform program is needed: instead of one-off increases, a time-bound program with an upfront agreement that the end result would be the elimination of energy subsidies within, say, three or four years. Encouragingly, Jokowi is reported to have committed to something like this in the election campaign. On May 2, he was quoted in the Jakarta Post as saying ‘In four years, the fuel subsidy should be eliminated gradually, step by step, until it’s gone.’

Whether Jokowi will deliver remains to be seen. If he decides to have a go, it would be wise for him to start early and to seek parliamentary support, as difficult as that would be. He could start as early as the 2015 budget, which will be presented to Parliament this month by the outgoing SBY, but approved at the start of the new president’s term.

Stephen Howes and Robin Davies are Director and Associate Director, respectively, at the Development Policy Centre, Crawford School of Public Policy, The Australian National University. This is the second in a series of three posts on their “Survey of Recent Developments” appearing in the latest Bulletin of Indonesian Economic Studies. The first post can be found here.

A version of this article was first published here on New Mandala.

The Indonesia Update will be held at The Australian National University on 19–20 September.

Categories: Forum

Can Modi rise to India’s challenge?

East Asia Forum - Wed, 08/13/2014 - 05:00

Author: Hugh White, ANU

Narendra Modi’s new government in New Delhi has restored the sense of excitement about India’s potential both as an economic powerhouse and as a key regional power. Many people, both in Asia and beyond, hope and expect that under Modi’s government India will recover from the political drift and sluggish growth of recent years and at last fulfil its promise as one of the indisputable great powers of Asia.

We should all hope that this optimism is justified. There is no doubt that a more prosperous India would be good for the whole region economically, and that a stronger India could do more to help build a stable and secure new order in Asia.

And equally there is no doubt that Modi has a lot to offer India. He has a clear plan to reboot economic growth, based on the successful economic polices he pioneered in his home state of Gujarat. His electoral success gives reason to expect that he will have the authority to implement his plan. And he seems to have an expansive vision of India’s future as a major Asian power.

But a note of caution is in order about what we should expect from India, economically and strategically. Let’s take economics first. The plan that Modi pioneered in Gujarat and now wants to apply to the whole country is based on manufacturing. This is an important shift. Much of the earlier bullishness about India’s economic trajectory was based on the idea that India could forge its own path based not on manufacturing but on services.

Certainly India has done very well in service exports because of its unusually large numbers of highly-educated people. But it has always been uncertain that India could achieve sustained high growth without the primary focus on manufacturing, which has powered economic take-off in every other country from Britain in the eighteenth century to China today.

To follow this well-trodden path, India has to start moving huge numbers of people — hundreds of millions in this case — from semi-subsistence farming into urban factory work. Modi’s policies certainly address some of the barriers that have prevented India from doing this until now. But that will not be enough to turn India into the next China.

The evidence from two hundred years of industrialisation and urbanisation suggests that there are two essential preconditions for sustained economic take-off which India does not yet satisfy.

The first is mass literacy. To move from farm to factory, people must be able to read and write. Literacy in India remains low — some estimates as low as 63 per cent, compared with Indonesia for example at over 90 per cent — and literacy growth has apparently slowed over the past decade. Modi’s economic plan will not work unless he can turn this around.

The second, related factor is social mobility. People moving from village to city must leave their old community and social settings behind and create new ones. Every society finds this hard, but social conservatism seems to make it especially hard in India, and particularly hard for women.

These barriers to growth will only be overcome with bold policies, well-conceived, well-executed and sustained over decades. Even for Modi this will be a huge challenge in India’s factious and fractured political system, especially when so much of the work must be done by state governments over which the national government in Delhi can exercise little control.

What of India’s role in the new and complex geopolitics of Asia? India already has significant strategic weight, and that will grow if and as its economy grows. But what will India do with its growing power?

Many people throughout the region hope that India will use its power to counterbalance China’s and prevent China dominating Asia. Don’t bet on this. Sino–Indian strategic rivalry is primarily maritime because, notwithstanding their land border disputes, the Himalaya is an effective barrier to any serious power projection by land in either direction. And, at sea, long-term trends in maritime warfare give a huge advantage to the defensive over the offensive.

This has big implications. Even if its economic growth increases its strategic weight and military reach, India’s capacity to project power into East Asia’s littoral against Chinese opposition will remain very limited indeed. Conversely, China’s massive investments in maritime forces will give it very little capacity to project power into the Indian Ocean against India’s growing maritime capabilities.

India will therefore be able to prevent China establishing any kind of primacy or even a significant strategic presence in the Indian Ocean, but India will not be able to prevent China establishing primacy in East Asia. And vice-versa. These geographical and military factors mean we should be very careful about assuming the emergence of a single, integrated ‘Indo-Pacific’ strategic system over coming decades.

It is just as likely that Asia’s two giants will each stick to their own oceanic spheres and avoid direct confrontation with the other. Moreover we might wonder why India would want to try to compete with China in East Asia. Leaders in Washington and Tokyo might hope that India will help America to remain the primary regional power, and Tokyo no doubt hopes as well for India’s support against China if America’s leadership in Asia falters.

But these hopes assume that India’s strategic interests in relation to China will closely align with Japan’s or America’s. Why would India take on China to fight their battles, if Delhi is confident that China cannot project power into the Indian Ocean? India is a great power in its own right, with its own vitally important relationship with China, which it will not sacrifice for America’s or Japan’s sake, or anyone else’s. That means East Asians should not be too sure that India will save them from China.

Finally, there is the problem of Pakistan. Though India is far stronger, Pakistan with its nuclear arsenal is still strong enough to hobble India strategically. It is no exaggeration to say that India cannot fulfil its potential as a great power in Asia until its dispute with Pakistan is settled.

Modi’s Hindu nationalist credentials should make it easier for him than for his Congress predecessors to make the concessions to Islamabad which will be needed to move towards a settlement. Whether the government in Islamabad is capable of responding remains an open question, but if Modi is serious about expanding India’s regional role he must look first to Pakistan.

Hugh White is professor of strategic studies at the Strategic and Defence Studies Centre at the Australian National University in Canberra.

This article first appeared here in the Straits Times


Categories: Forum

It’s do or die for the TPP

East Asia Forum - Tue, 08/12/2014 - 17:00

Author: Claude Barfield, AEI

Heading into the fifth year of intense negotiations (with twenty-odd formal sessions and countless informal side meetings), the Trans-Pacific Partnership (TPP) agreement will almost certainly succeed — or fail — over the next six months. President Obama has set the November APEC leaders’ meeting as his personal deadline for the broad outlines of a deal encompassing and overcoming the major challenges in this purported ‘twenty-first century’ trade pact. The 12 TPP member nations have previously blown past similar deadlines in 2012 and 2013; but this time the political calendar and negotiating weariness dictate that a continuing stalemate at year’s end will deal a crippling blow to a successful outcome.

With regard to the negotiating dynamic, failure to achieve major substantive breakthroughs by early 2015 will evoke the dreaded ‘Doha syndrome’ image. The WTO’s multilateral Doha Round of trade negotiations has dragged on for 12 years. Currently, a desperate search for compromise on a small fraction of negotiating issues seems to have failed. Whatever the outcome of this tail-end effort, the WTO experience will provide ammunition for TPP sceptics who will cite Doha as the rueful model for ‘biting off more than you can chew’ in trade negotiations with predictable results.

Turning to the political calendar and a shifting political balance of forces, as is often the case, the United States remains the central factor to any agreement on the TPP. First, though it is less an iron rule than sometimes portrayed, the 2016 presidential campaign will increasingly intrude upon all policy issues — and particularly upon the divisive trade agenda. This reality dictates a push for at least broad agreement on key TPP compromises by January or February.

Assuming solid advances in the TPP negotiating framework, what are the political pathways — and political snares — to US ratification of the agreement?

The Democratic Party remains deeply divided on trade policy in general and on the TPP specifically. President Obama, on the other hand, has elevated the TPP as a single goal for his second term; and while there are signs of lame-duck erosion, having a Democratic president solidly behind a trade negotiation still will make, at least, a marginal difference.

The House of Representatives will be key. House Republicans can still deliver at least three-quarters of the Republican majority in favour of the TPP. The Tea Party’s 2011 votes on the Panama, Colombia and South Korea FTAs suggest that they will also support the TPP — despite any animosity toward President Obama.

As for the Senate, once again it is likely that the basics will prevail: a sizeable majority of Republicans will combine with a minority of Democrats to produce a TPP majority.

Beyond these basics, the near-term political calendar is dicey. First, there is the problem of the Trade Promotion Authority (TPA), the authority granted by Congress to expedite an up-or-down vote on trade agreements within a certain time. Major political complications have stymied efforts to pass a bipartisan bill. Last week, Republicans on the Ways and Means Committee notified the administration that they would demand a vote on a TPA bill before TPP negotiations were completed.

Looking to the future, there are a number of possible scenarios that could play out. But most will depend on the outcome of the midterm election and who holds the majority in Congress. If Republicans win the senate, they may put off TPA until January and the new congress.

The role that the US Congress could play is premised on the assumption that the substantive negotiations produce an acceptable set of compromises by year’s end. What are the dynamics of such a result? First, the TPP has been touted as a ‘twenty-first century agreement’, meaning that it will stake out new territory in liberalising ‘behind-border’ barriers to trade in service sectors, state-owned enterprises, health and safety measures, meaningful regulatory reform and convergence, intellectual property, and investment arbitration, among others. But alongside these new issues loom old fights on twentieth century issues relating to industrial and agricultural tariffs and subsidies in sectors such as textiles, clothing shoes, sugar, cotton, rice and grains.

Japan is demanding special treatment (that is, protection) for five ‘sacred’ items — rice, wheat and barley, pork and beef, dairy and sugar — and it is locked in a line-by-line battle with the United States to thwart liberalisation in these sectors. Currently, it looks as if Japan will concede something in each sector — particularly pork, beef and dairy — but will not be forced to go to zero tariffs in all five areas. Both sides have promised key announcements in October at the latest.

An acceptable compromise on the old, twentieth century issues is tied directly to other negotiations on inside-the-border issues. For instance, Vietnam has told the US that it is not prepared to make concessions in investment without concessions on textiles and shoes. Australia’s trade minister openly stated that Australia’s opposition to an independent investor arbitration body and some US demands on intellectual property might ease if a better deal emerged on lamb and beef products. Other TPP countries have signalled openness to similar trade-offs.

It is going to take both luck and skill to bring off this high-wire act over the next six months. But much is riding on a successful outcome for the US: the TPP has become the single most important symbol of future US leadership in Asia. Failure will have not only economic but also debilitating diplomatic and security consequences. Within the United States, two are imperatives: hands-on presidential leadership (admittedly not a normal Obama strength) and responsible initiatives from congressional Republicans — who have provided the bedrock majorities for FTAs for the past two decades.

Claude Barfield is a former consultant to the office of the US Trade Representative and a resident scholar at the American Enterprise Institute. 

A version of this article was first published here.

Categories: Forum

Pooling sovereignty? Australia and the Pacific islands

East Asia Forum - Tue, 08/12/2014 - 06:00

Author: Jon Fraenkel, Victoria University of Wellington

Representatives of the states party to the Pacific Islands Forum (PIF) gathered in Palau from 29 to 31 July with an oceanic task on their hands: to revitalise their region’s premier political organisation. This year’s gathering featured a review of the forum’s decade-old Pacific Plan, which finds it to be poorly focused and bogged down in a ‘largely officials-led process’ that has come to be dominated by ‘bureaucratic and institutional interests’. The solution, according to the review team led by a former prime minister of Papua New Guinea, Sir Mekere Morauta, is for the region to engage in some ‘pooling of sovereignty’, but not full integration.

Several of the region’s key leaders have chosen not to participate in the Palau summit with its debates about how to strengthen the regional architecture. Australia’s Tony Abbott said he was busy with other matters. The prime ministers of New Zealand and Fiji, John Key and Frank Bainimarama, are on the campaign trail ahead of elections in September. Fiji is anyway suspended from the PIF because of the military coup that brought Bainimarama to power in 2006, though the country will likely be invited back if its next elections are deemed reasonably fair. Bainimarama says he does not want to bring Fiji back to the forum anyway, unless Australia and New Zealand are kicked out. He has set up a rival group, the Pacific Islands Development Forum, which met in June this year and managed to secure Indonesia’s president, Susilo Bambang Yudhoyono, as its keynote speaker.

Given these challenges to the PIF, and the level of disinterest among some of its leaders, the prospects for substantial commitments to pooling sovereignty may seem slender. The incentives to do so seem relatively weak. Trade and capital flows generate little in the way of common ground between the microstates of the Pacific islands. The main economic linkages are outwards — to Australia and New Zealand, and increasingly to Malaysia, China and the rest of the Far East. Politically too, the microstates’ key ties are outside the region, particularly for the tiny aid-dependent atolls and the territories still under French or American sovereignty.

Efforts in the 1970s to create a truly regional airline, Air Pacific, were ultimately unsuccessful. The firm stayed primarily under the control of Fiji, which renamed it Fiji Airways in 2013. The Forum Shipping Line, which does not operate its own ships but only code-shares with private contractors, was taken over by Samoa in 2012 and then privatised earlier this year. A regional tertiary institution exists, the University of the South Pacific based in Fiji, but only with a highly devolved campus structure. Other member-states — such as Samoa, the Solomon Islands and Papua New Guinea (PNG) — have their own national universities anyway. Deliberations on a regional trade agreement with Australia have faltered, not least because of Fiji’s exclusion and because of Australian reluctance to open its doors to labour migration from the rest of the Pacific.

Australia’s current initiatives in the region are unlikely to speed the development of robust regional institutions. Its establishment of detention centres, on PNG’s Manus Island and on Nauru, which are being used to house asylum-seekers who were caught trying to reach Australia by sea, has had negative repercussions for the governance of both countries. It has also had the effect of generating some friction between PNG and Fiji.

Unless Bainimarama were to carry the day with his alternate Pacific islands forum, Australia would have to be the critical player in any strengthening of the regional architecture. But this year the government of Tony Abbott cut its aid to the rest of the Pacific dramatically and shut down the Australian TV Network, which used to broadcast to the island nations. With Australia’s influence waning, and Fiji temporarily excluded, PNG’s relative prominence in the PIF deliberations has risen. PNG’s own nominee, Dame Meg Taylor, a former official with the World Bank, has been selected to serve as the organisation’s next secretary-general. She becomes the first women to hold the post.

While the island-states have been reluctant to concede sovereignty, there have been some important regional diplomatic successes. The Nauru Agreement, coordinated by the Pacific Islands Forum Fisheries Agency, regulates fishing in the vast exclusive economic zones of the Pacific. Along with a series of other agreements with the same signatories, it has helped to generate some much-needed income for the land-poor atolls, even if it has not been sufficient to halt chronic overfishing.

The main PIF security initiative, the Regional Assistance Mission to the Solomon Islands, was reasonably successful in ending a five-year period of violent conflict in that country, at least in its early stages. It is now winding down, though the Solomon Islands’ prime minister tabled a report at the PIF which argues that — by insisting on keeping rigid control of the mission for itself — Australia has missed a rare opportunity to strengthen the region’s security institutions.

Yet in the view of Greg Fry, a professor at the University of the South Pacific, collective Pacific diplomacy, entailing ‘joint regional action aimed at mediating, moderating or denying harmful global influences on the region and to maximise the benefits from positive international influences’, has enjoyed some success. In the past, there have been successful regional negotiations on trade agreements with the EU, on the UN Convention on the Law of the Sea and on nuclear shipments. Most recently, the presidents of Kiribati and the Marshall Islands, Anote Tong and Christopher Loeak respectively, have been at pains to draw attention to climate change and the related problem of rising sea levels.

Still, those issues are not likely to find much favour with the region’s mini-superpower. Australia’s Mr Abbott has in the past contested the basic fact of global warming. His attempt to create a conservative global alliance against any effort to introduce carbon pricing is unlikely to find many takers among the Pacific nations. If there were to be any new sense of regional solidarity on the basis of environmental issues, then, it would have to proceed without Australia. Either that, or it would have to await a change of government in Canberra.

Jon Fraenkel is Professor in Comparative Politics at the Victoria University of Wellington.

This article was originally published in The Economist on 1 August 2014.

Categories: Forum

Kerry, Hagel visits set agenda for Obama-Modi meeting

East Asia Forum - Mon, 08/11/2014 - 17:00

Author: C Uday Bhaskar, Society for Policy Studies

The recent back-to-back visits to Delhi by US Secretary of State John Kerry and Secretary of Defense Chuck Hagel mark the first high-level political contact between the Obama administration and the newly elected Modi government.

These two visits have given much-needed political traction to the troubled India–US relationship. Over the last year, the list of disappointments and frustration has been long and varied including: the December 2013 Devyani Khobragade controversy (where the Indian diplomat in New York was arrested for alleged visa fraud, strip-searched and returned to India), unease over Prime Minister Modi having been denied a visa to the US when he was Chief Minister of Gujarat, and Indian dismay over US snooping related to the Snowden revelations. This dissonance resulted in US Ambassador Nancy Powell choosing to step down before the end of her tenure.

The Obama administration conveyed its intent to engage with Prime Minister Modi soon after his dramatic victory in May and the visa issue was deftly set aside by the Indian leader who signalled his intent to pursue the relationship in an objective manner devoid of any personal grievances about the past. Testing the resilience of the relationship was the Indian decision to reject the global trade facilitation agreement on the eve of the Kerry visit with both sides prudently agreeing to disagree.

To that extent the visits by Kerry and Hagel have enabled both sides to identify some of the big issues that will form the agenda for the Modi–Obama meeting scheduled for late September in Washington. The US and India have had an estranged relationship for three decades over the nuclear issue and in 2005 then president Bush took the radical decision to review and re-arrange the bilateral relationship. Deftly squaring the nuclear circle, the June 2005 Bush–Manmohan Singh civilian nuclear cooperation agreement accorded India an exceptional status in the global nuclear community and redressed the US-led ostracism imposed on India in 1974.

But, for the US, India is neither fish nor fowl in more ways than one and the ambivalence continues. Delhi’s adherence to a non-aligned posture during the Cold War decades and the resultant empathy with Moscow was in contrast to the US–China rapprochement in the latter phase of the Cold War. After the disintegration of the former USSR, and the strategic flux that followed, India embarked on its long delayed economic liberalisation program and the May 1998 nuclear tests burnished Indian credibility as a major power.

Opting to forge partnerships as opposed to any formal military alliance, Delhi managed to engage its critical negotiators and invested in fora such as the BRICS (Brazil, Russia, India, China and South Africa), supporting the concept of a multi-polar global system.

The improvement in relations with both China (from 1993) and the USA (from 2005) has been a significant achievement for Indian diplomacy and currently Delhi is in an enviable situation wherein its progress is welcomed and encouraged — unlike the rise of China which causes unease across the region.

India’s status as a significant swing state in the emerging strategic framework is acknowledged by its peers and this is reflected in the manner in which the Modi government is perceived by capitals across the world. Whether Prime Minister Modi will be able to manage concurrent relationships with adversarial powers is moot. Some dyads such as US–Russia, US–China and China–Japan are particularly complex and the dynamic of global trade and commerce does not allow for any binary choices.

The US also faces this dilemma, and the Kerry and Hagel visits come at a time of strategic importance. Though it has received little attention, India (at Russia’s behest) is set to join the China-led Shanghai Cooperation Organization (SCO) in early September, along with Iran, Pakistan and Mongolia. This is a security forum whose ‘non-western’ identity cannot be ignored and though it is focused on terrorism and extremism, its strategic contour, when expanded, will include four nuclear weapon powers (Russia, China, India and Pakistan ) and one aspirant — Iran.

India’s SCO membership is likely to be formalised by mid-September before Prime Minister Modi is scheduled to visit Washington. How will the US deal with this new aspect of Indian identity? While Delhi has been committed to its notion of ‘strategic autonomy’ and does not wish to ‘take sides’, the awkward reality is that it is heavily dependent on imports for its military inventory.

India’s quest to acquire some degree of credible indigenous military capability is inexorably linked to how it defines its relations with the US. The Kerry and Hagel visits only point to the complex and contradictory agenda that will subsume the Obama–Modi meeting.

C Uday Bhaskar is Distinguished Fellow at the Society for Policy Studies, New Delhi.

Categories: Forum

President SBY’s second-term development scorecard

East Asia Forum - Mon, 08/11/2014 - 05:00

Authors: Stephen Howes and Robin Davies, ANU

The recent election of Indonesia’s next president, Joko Widodo (Jokowi), provides an opportunity to reflect on the legacy and performance of Indonesia’s outgoing president Susilo Bambang Yudhoyono (SBY).

A useful starting point is to compare Indonesia’s performance against the targets SBY set in his 2010–14 National Medium-Term Development Plan.

As in his first term, SBY cannot report that his second-term targets have been fully achieved, but he can certainly point to considerable progress in important areas. Our assessment is that five of his main targets were mainly achieved (growth, poverty, unemployment, inflation, and infant mortality), two were partly achieved (life expectancy and literacy) and three were not achieved (agricultural production, corruption, and democracy).

Indonesia looks especially good from an international perspective: its economic growth over the last five years was the fourth highest in the G20, though it was helped more than most countries by China’s demand for energy and mineral resources. Poverty in Indonesia has fallen consistently and significantly, though it would have fallen more had the same rate of growth been achieved with a smaller increase in the level of inequality. The share of Indonesia’s richest 20 per cent in total household expenditure rose from 42 per cent at the start of Yudhoyono’s first term to 49 per cent at the end of his second.

SBY is the first president in Indonesia’s fledging democratic era to serve out a full term, let alone two. It was not so long ago that a democratically elected president, Abdurrahman Wahid, was impeached by parliament in questionable circumstances and removed from office under threat of action by the Indonesian military. Not that everything is rosy today in Indonesia’s body politic. The drop in its Democracy Index score reflects a perceived regression in the treatment of religious minorities. Still, a major positive legacy of SBY’s two terms in office is the entrenchment of a vibrant democracy.

Earlier in his second term, SBY’s failure to prosecute an anti-corruption agenda was widely commented on. With Indonesia’s Corruption Eradication Commission increasingly going after very high-profile cases, progress in this area now looks more encouraging. However, Indonesia’s rating in the international Corruption Perceptions Index has only improved marginally and by nowhere near enough to reach the president’s target. Its relative ranking has actually declined. For a radical reduction in corruption, more political leadership will be required to complement the enhanced investigatory effort.

SBY’s second-term economic reform record is not impressive, especially given the strong mandate given to him. Trade and fiscal policy have been particularly problematic. On the former, protectionism and economic nationalism reasserted themselves during his second term, particularly in agriculture and mining.

Not all of this can be blamed on the president. Indonesia also has an active parliament. Over the last five years, Indonesia’s parliament passed five important pieces of legislation governing agriculture, industry and trade: Law 13/2010 on Horticulture, Law 18/2012 on Food, Law 19/2013 on the Protection and Empowerment of Farmers, Law 3/2014 on Industry, and Law 7/2014 on Trade. All of these laws either mandate or authorise a protectionist approach to economic policy-making. They allow varying degrees of flexibility, but also provide a basis on which any trade, industry or agriculture minister so inclined could build a policy package of high tariffs, quotas — or both.

The food and farmers laws are the most clearly protectionist. The former makes self-sufficiency the objective of government, and the latter requires the government to prop up agricultural prices. The United States and New Zealand have complained that the horticulture law violates Indonesia’s WTO commitments, and the European Union has suggested that the trade and industry laws do the same. The Indonesian government will continue to be constrained by international commitments and public outcries against high food prices, but it will also be under pressure to implement what is now the law of the land.

Though Indonesia’s parliament is often portrayed as fractious, its legislation is usually passed unanimously. There is clearly a widespread protectionist sentiment among Indonesia’s political elite, and charting a course for freer trade will not be easy, even if there is the appetite for it.

The most immediate problem facing the new administration will be grappling with the fiscal legacy of SBY and the outgoing parliament. For the first time, Indonesia’s budget deficit is bumping up against its legislated maximum of 3 per cent of GDP. Revenue performance has been relatively weak, energy subsidies are as massive as ever, and a growing category of mandated expenditures threatens good fiscal management.

To summarise, the 2009-14 scorecard looks better if you focus on outcomes rather than policies. That says something about the value of the stability that has characterised the last decade in Indonesia. But bad policies inflict damage with a lag. How SBY and Indonesia’s outgoing parliament will be judged in hindsight will depend in part on how effectively the policy problems they have left behind are tackled by their successors.

Stephen Howes and Robin Davies are Director and Associate Director, respectively, at the Development Policy Centre, Crawford School of Public Policy, Australian National University. This is the first in a series of three posts on their “Survey of Recent Developments” appearing in the latest Bulletin of Indonesian Economic Studies.

The Indonesia Update will be held at The Australian National University on 19–20 September.

A version of this article was first published here on New Mandala.

Categories: Forum
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